Chapter 11 is...bad. If you have to declare it, it means you're a deadbeat. You can't pay the bills you promised to pay, and now you're...out.
In the olden days, debtors would go to prison and basically stay there forever. Today, we handle money issues a bit more humanely.
In theory, Chapter 11 forms of bankruptcy exist in order to give the company that went bust time to become profitable again. Unlike a Chapter 7, which aims to quickly purge everything and start clean, a Chapter 11 form is kind of a control-alt-delete reboot of debts. The business can file a petition for bankruptcy protection, and with that be granted a break from collection activities for a period of time...and use the break to reorganize its debts. Creditors figure they may as well work with the business before it sinks or files a Chapter 7, and potentially writes their debt off.
So a Chapter 11 reorg is a kinder, gentler form of 7, wherein companies basically turn their pockets inside out and say "Uh.. sorry/not sorry."
In the Chapter 11 process, a business has to categorize its liabilities, and present financial information and a reorganization plan to the court. The debts are categorized state/federal agencies, wages owed, and shareholder interests.
Once the plan is approved by the court, the business follows the new plan going forward. However, sometimes the court will convert the 11 to a Chapter 7 because the business just can’t realistically become profitable again. The court is basically saying, “We appreciate your spirit, but it’s time to throw in the towel.”
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Finance: What is Bankruptcy?260 Views
Finance a la' Shmoop what is bankruptcy well in the old days
this was bankruptcy you'd go to prison if you couldn't pay your bills and [People in prison for bankruptcy]
unfortunately there weren't and still aren't a lot of legal high wage earning
opportunities in prison working your way out of debt on the chain gang wasn't [Prisoners working outside]
really a thing back then so instead the burden would be on your family to pay
back the loan you'd promised to pay back and didn't ugly situation it paved the [Officer knocking on a prisoners family member to pay their debts]
way for some well today bankruptcy has a range of flavors that it comes in but
basically it exists as a legal vehicle to avoid the aforementioned situation a [Bankruptcy van driving]
bankrupt person and/or corporation stands in front of a judge they turn
their pockets inside out with a sad face and the judge then decide who will be [Person opens their pockets inside out in front of a judge]
paid when and how much well how does she decide the order for who gets paid back
when? well, it usually prioritizes employees and vendors owed a paycheck
above banks who have made a loan and under that umbrella all different types
of loans have different priorities if the bankrupt individual owns a home it's [bankrupt individual in his home on the toilet reading a newspaper]
usually sold out from under him and anything left after paying off the
mortgage is used to pay others even if you do survive a bankruptcy your credit
is pretty much ruined who's going to want to loan you money once you've
proven that you're not good with being loaned money yeah if you've defaulted in [a really low credit score chart for a bankrupt individual]
the past on promises to pay people back why wouldn't you do the same thing again
well remember that twenty dollars you loaned your buddy Eric that he never [Person loaning 20 dollars to friend Eric
paid back well how eager are you going to be to hook him up with another twenty
especially since you'd only be feeding his betting on frog fighting habit yeah [Eric betting money on frog fighting]
not so much so long Eric you'll get the help you need!
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